Miri Thomas sits down with Colin Abrahams, tax partner at MHA. They discuss the Budget announcements that matter to business leaders including changes to employers' National Insurance contributions, capital gains tax and inheritance tax.
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00:00Key takeaways in the budget, all coming up in today's Daily Business Briefing.
00:12Good morning, I'm Mary Thomas, Insider's Editorial Director, and I'm joined today by Colin Abrahams, Tax Partner at MHA. Hello Colin.
00:20Hi there Mary.
00:21So, we had the budget, what's your initial reaction?
00:25My initial reaction is that it could have been worse, but I think many of the provisions had already been trailed by the government,
00:34as the Deputy Speaker sort of highlighted at the very beginning that some of those announcements shouldn't have been made,
00:40but we had a pretty good idea beforehand as to what was coming up.
00:44And this is a budget where the Chancellor said they were asking business to do more.
00:49What are some of those things that they're asking businesses to do?
00:52I think the major announcement is obviously around Employers' National Insurance and the fact that the rate is going up from 13.8% to 15%,
01:04so that 1.2% increase.
01:07But as important really is the fact that the secondary threshold above which Employers' NI actually starts to be charged is reducing from £9,100 to £5,000,
01:20which means that if you had an employee who was on £9,100 and there would have been no Employers' NI payable on them,
01:28now you would be paying £615 of Employers' NI for that person that you wouldn't have previously.
01:36So, when you factor that in with the extra 1.2% increase in Employers' NI, some businesses will be hit very hard.
01:45Do you think businesses will be encouraged by maybe something staying in place like R&D relief and things like that?
01:50Yeah, I think they will.
01:53I think there's still a big debate around R&D tax reliefs as to whether it really does encourage investment.
02:00As we know, a lot of R&D tax relief claims, well, some of them have been quite dubious as to whether there really are research and development.
02:13And I think in many ways that we probably need to take a fresh look at how we incentivise investment.
02:20But they have given stability over this Parliament for the sort of corporation tax regime in general, which would be welcomed by business.
02:28But at the end of the day, it's the overall cost to business.
02:31And the question is, if their costs go up, who ultimately bears it?
02:35Is it the business?
02:36Do they pass it on to customers, to clients?
02:40Or do they reduce their headcount?
02:42Or do they pay increases?
02:45So it's really when the music stops, who actually bears the brunt of the Employer NI increases, for example.
02:52And I know this is a budget set to encourage growth.
02:55And I think one of the things we need is more people starting businesses.
02:59So entrepreneurs, are they more encouraged about things now?
03:06We had a rise in capital gains tax, for example.
03:08How do you think this will affect people?
03:10Yeah, I think that's one of those areas where I think it could have been a lot worse.
03:14And I think that the highest rate of CGT increasing from 20% to 24% on shares is not as bad as it could have been.
03:24And as some commentators had potentially trailed the increases.
03:30But then we learned from, at the time of the coalition government, when they were looking to increase capital gains tax rates,
03:36that there becomes a threshold that if you raise rates above a certain threshold, then people actually just don't sell assets.
03:43And therefore, the take to the Treasury goes down.
03:46I think at 24%, they may have actually got the balance right, I think.
03:51Okay, so you're saying people won't be sitting on their hands, perhaps, waiting for the rate to go back down again, maybe?
03:56Correct.
03:57And for those people where we had what was entrepreneur's relief, now business asset disposal relief,
04:03because the threshold used to have a £10 million lifetime allowance for what was a 10% tax rate.
04:11Now it's only a million.
04:13And that rate is going from 10% this year to 14% next year, and then be taxed at 18% the year after.
04:21So you have to question how effective it really is in overall terms now.
04:26But like I said, CGT, capital gains tax, is one of those areas where it could have been a lot worse.
04:32And what about inheritance tax, where somebody might have thought that they would pass on a business after their death?
04:38What are some of the implications of that?
04:40Yeah, and I think that probably is an area where it's a little more troubling from what we know now.
04:46And again, around the issue of reliefs that are available, so business relief, agricultural relief.
04:54Now the whole essence of these reliefs were where people had a business, a privately owned business,
04:59and if they were to die, if they had an inheritance tax bill,
05:03then often they'd have to sell the business to be able to pay the inheritance tax.
05:08So the fact that now that you're only allowed the first million pounds that will be free of IHT from 2026,
05:15and anything above that million pounds will be taxed at 20%,
05:19the question is, you haven't actually got that value in cash.
05:24It's wrapped up in the value of your shares.
05:27Your business may not be cash generative, but may still have some intrinsic value because of its intellectual property
05:34and what it offers, particularly relevant to technology businesses.
05:38So it's how do people pay their IHT bill when they may not have the cash to pay it in the event of death?
05:44And so, you know, again, it'll be in the detail to see how we deal with that,
05:47whether the government allows IHT to be paid by installments.
05:51But that's troubling, really, to me, because, you know, those reliefs are very, very important.
05:57And it shouldn't be the case that if you die, you have a tax charge that actually could actually put the future of that business at risk.
06:07Were you encouraged by the investment announcements?
06:12So, for example, investments into sectors like aerospace, automotive, into infrastructure as well?
06:17Yeah, I'm all in favour of investment.
06:21But the proof is in the pudding. It's how well do you invest?
06:26And some investments can be good and other investments may not be so good.
06:30And I think government's record on infrastructure spend is not the best.
06:36We've seen a number of IHT projects in government where the spending has been astronomical for systems that don't really work properly.
06:44So as with anything, any investment that's made, you know, we need to get good value for money and it's got to be spent in the right way.
06:52And Colin, your final thoughts about the budget?
06:56I go back to what I said at the beginning, it could have been a lot worse.
06:59I think we've seen a clear distinction now between the previous government and this government.
07:05This government obviously believes that spend by government or a more centrally managed economy is better than one that is left to free market forces, if you like.
07:20And it'll be interesting to see how that pans out.
07:24But yeah, it could have been a lot worse.
07:26Thank you very much, Colin Abrahams, tax partner at MHA.
07:29And thanks to MHA for sponsoring today's video as well.
07:33You can catch more news from Insider on our website, insidermedia.com.